GOVERNMENT GRANT
What amount should be
Problem 43-1 (IFIRS)
Athe beginning of cutrent year, Sagada
Company received a grant 6/825,00,000
from the merican government in order to
deftay safety and environmental costs
within the area where the entity is
located.
The safety and environmental costs are
expected to be incurred over four years,
respectively, P2,000,000, ₽4,000,000,
P6,000,000 and P8,000,000.
1. What amount should be
recognized as grant
2. income for the current year?
Problem 43-2
On January 1, 2021, Besao Company
receive a grant of 10,000,000 from the
Australian gov’t for the construction of a
laboratory and research facility with an
estimated cost of P15,000,000 and useful
life of 5 years.
The laboratory and research facility was
completed and ready for the intended use
on December 31, 2021.
3. What amount of grant income
should be included in the
income statement for 2021?
Problem 43-3 (IFRS)
On January 1, 2021, Barlig Company is
granted a large tract of land in the
Cordillera region by the Philippine
govemment. The fair value of the land is
P40,000,000. The entity is required by
the grant to construct chemical research
facility and employ only personnel
residing in the Cordillera region.
The estimated cost of the facility is
P45,000,000 with useful life of 10 years.
I he chemical research facility was
completed and ready for the intended use
on December 31, 2021
. On January 1, 2021, Easy Company
4. What amount should be
recognized as grant income
for 2022?
Problem 43-4 (IF RS)
At the beginning of current year,
Citimart Company was granted by a
local gov’t authority 5,000 hectares of
land located near the slums outside the
city limits.
The condition attached to this grant was
that the entity shall clean up this land
and lay roads by employing laborers
from the village where the land is
located.
The entire operation will take 3 years
and is estimated to cost P10,000,000.
This amount will be spent P2,000,000
for first year, P2,000,000 for second
year, and P6,000,000 for third year. The
FV of this land is P12,000,000.
5. What amount of grant income
should be recognized for first
year?
Problem 43-5 (IFRS)
Intelligent Company received a
government grant of P 15,000,000 to
install and run a windmill in an
economically backward area. The entity
had estimated that such a windmill
would cost P25,000,000 to construct.
The secondary condition attached to the
grant is that the entity shall hire labor in
the area where the windmill is located.
The construction was completed at the
beginning of current year.
The windmill is to be depreciated using
the straight line method over a period of
10 years.
6. What amount of grant income
should be recognized for the
current year?
Problem 43-6 (IFRS)
At the beginning of current year,
Exuberant Company received a
consolidated grant of P12,000,000.
Three-fourths of the grant will be
utilized to purchase a college building
for students from underdeveloped
countries.
The balance of the grant is for
subsidizing the tuition costs of those
students for 4 yrs from the date of grant.
The building was purchased in early
January and is to be depreciated using
the straught line method over 10 yrs, the
tuition costs paid amounted to P600,000
during the current year.
7. What amount of grant income
should be recognized for the
current year?
Problem 43-7 (IFRS)
At the beginning of current year,
Sabangan Company received a grant of
P6,000,000 from the British government
to compensate for massive losses
incurred because of a recent tsunami.
The grant was made for the purpose of
giving immediate financial support to the
entity. It will take the entity two years to
reconstruct the assets destroyed by the
tsunami.
8. What amount of grant income
should be recognized in the
current year?
Problem 43-8 (IF RS)
Paula Company purchased a varnishing
machine for P6,000,000 on January,
1,2021. The entity received a grant of
P540,000 in respect of this asset.
The accounting policy is to depreciate
the asset over 4 yrs on a straight line
basis and to treat the grant as deferred
income.
9. What is the CA of the
machine on December
31,2022?
10. What amount should be
reported as deferred grant
income on December 31,
2022?
Problem 43-9 (IFRS)
Peach Company purchased a machine
for P7,000,000 on January 1, 2021 and
received a gov’t grant of P 1,000,000
toward the capital cost.
The machine is to be depreciated o a
straight line basis over 5 yrs and
estimated to have a residual value of
P500,000 at the end of this period.
The accounting policy is to treat the
grant as a deferred income.
11. What is the CA of the asset
on Dec, 31,2021?
12.
reported as deferred grant
income on Dec 31,,2022?
Problem 43-10 (IFRS)
Bay Company purchad a jewel polishing
machine for P3,600,000 on January
1,2021 and received a government grant
of P500,000 toward the capital cost.
The accounting policy is to treat the
grant as a reduction in the cost of the
asset.
The machine is to be depreciated on a
straight line basis over 8 yrs and
estimated to have a residual value og
P100,000 at the end of this period.
13. What amount should be
recorded as depreciation of
the machine
14. What is the carrying amount
of the asset on December 31,
2022?
Problem 43-11 (IFRS)
On January 1,2021, Darwin Company
purchased plating machine for
P5,400,000. The entity received a
government grant of P400,000 toward
this capital cost
The machine is to be depreciated o 20%
reducing balance basis over 10 yrs. The
estimated residual value is P200,000.
The accounting policy is as treat the
government grant as a reduction in the
cost of the asset.
15. What amount should be
reported as accumulated
depreciation on December
31, 2022?
16. What is the CA of the
machine on Dec, 31,2022?
Problem 43-12(IFRS)
received a grant of P1,500,000 from the
government to subsidize tuition fees for
a period of 5 years.
On January 1, 2023, the entity violated
certain conditions attached to the grant,
and therefore had to repay fully such
grant to the government.
17. What amount should be
reported as grant income for
2021?
18. What amount should be
recognized as loss resulting
from the repayment of the
grant in 2023?
Problem 43-13 (IFRS)
Tarhata Company received a government
grant of P 2,000,000 relate to a factory
building that it bought in January 2021.
The entity's policy is to treat the grant as
deferred income.
The entity acquired the building from an
industrialist identified by the
government. If the entity did not
purchase the building, which was located
in the slums of the city, it would have
been repossessed by the government
agency.
The entity purchased the building for P
12,000,000. The useful life of the
building is 10 years with no residual
value.

On January 1, 2023, the entire amount of
the government grant became repayable
by reason of noncompliance with
conditions attached to the grant.
19. What amount should be
reported as depreciation of
the building for 2021?
20. What amount should be
recognized as grant income
for 2021?
21. What amount of loss should
be recognized resulting from
the repayment of the grant in
2023
Problem 43-14 (IFRS)
Lion Company received a government
grant of P1,000,000 related to
depreciable asset acquired on January 1,
2021 for P8,500,000. This grant was
deducted from the cost of the asset with
a useful life of 5 years and residual value
of P500,000. On January 1, 2023, the
grant became fully repayable due to
noncompliance with conditions.
22. What amount should be
recognized as depreciation
for 2021?
23. What amount should be
recognized as depreciation
for 2023?
Problem 43-15 (IAA)
On January 1, 2021, Batangas City
agreed to provide Probity Company with
a P5,000,000 three-year, zero-interest
bearing loan evidenced by promissory
note.
The prevailing rate of interest for a loan
of this type is 10% and the present value
of 1 at 10% for three years is .75.
24. What is included in the
journal entry to record the
loan and grant?
25. What amount should be
recognized as interest
expense for 2021?
26. What amount should be
recognized as grant income
for 2021?
27. What is the CA of the note
payable on December
31,2022?
CHAPTER 26 LAND AND
BUILDING
Problem 44-1 (AICPA Adapted)
Boyd Company purchased a P4,000,000
tract of land for a factory site.
The entity razed an old building on the
property to make room for the
constructin of new building and sold the
materials salvaged from the demolition.
Demolition of old building 200,000
Legal fees for purchase contract and
recording ownership 150,000
Title guarantee insurance 50,000
Proceeds from sale of salvaged materials
20,000
1. What amount should be
capitalized as cost of the
land?
Problem 44-2 (AICPA Adapted)
Kay Company purchased for 4,500,000 a
tract of land as a factory site. An existing
building on the property was razed to
pave the way for the construction of a
new factory building.
Cost of razing old building 300,000
Title insurance and legal fees to
purchase land 200,000
Architect fee 950,000
New building construction cost
8,000,000
Paving of street and sidewalk 100,000
2. What amount should be
capitalized as cost of the
land?
3. What amount should be
capitalized as cost of new
building?
Problem 44-3 (AICPA Adapted)
During the current year, Burr Company
had the following transactions pertaining
to a new office building:
Purchase price of land 600,000
Legal fees for contract to purchase land
20,000
Architect fee 80,000
Demolition of old building on site to
make room for construction of new
building 50,000
Sale of scrap from old building 30,000
Construction cost of new building fully
completed 3,500,000
4. What amount should be
reported as cost of land?
5. What amount should be
reported as cost of building?
Problem 44-4 (IAA)
Biliran Company incurred the following
costs at the beginning of the current
year:
Purchase price of land 1,000,000
Purchase price of building 4,000,000
Remodeling and repairs prior to
occupancy 500,000
Escrow fee 100,000
Clearing, leveling and landfill 250,000
Property tax for period prior to
acquisition 150,000
Real estate commission 300,000
6. What amount should be
capitalized as cost of
building?
Problem 44-5 (IAA)
At the beginning of current year,
Newman Company purchased a parcel of
land as a factory site for P1,000,000.
An old building on the property was
demolished to pave the way for the
construction of a new building which
was completed at
year-end.
Demolition of old building 100,000
Architect fee 175,000
Legal fee for title investigation and
purchase contract 25,000
Construction cost 5,450,000
7. What amount should be
recorded as cost of land?
8. What amount should be
recorded as cost of building?
Problem 44-6 (IAA)
Matinee Company incurred the
following costs in purchasing a landas a
factory site:
Purchase price 2,400,000
Cost of tearing down old building
240,000
Legal fee for title investigation 15,000
Title insurance 10,000
Architect fee 125,000
Liability insurance during construction
25,000
Excavation cost 40,000
Payment to building contractor
8,800,000
Special assessment by city for public
improvement 30,000
Interest cost incurred during construction
300,000
9. What amount should be
recorded as cost of the land?
10. What amount should be
recorded as cost of the
building?
Problem 44-7 (AICPA Adapted)
At the beginning of the current year,
leonara company purchased a parcel of
land as a factory site
An old building on the land was
demolished and construction started on
new building that was completed at the
end of current year.
Purchase price of land 3,200,000
Demolition of old building 200,000
Architect fee 300,000
Legal fee-title investigation 50,000
Construction cost 8,500,000
Imputed interest on construction cost
140,000
Landfill for building site 190,000
Clearing of trees from building site
100,000
Timber sold 30,000
Temporary building used for
construction activities 290,000
Land survey 40,000
Excavation for basement 110,000
11. What amount should be
capitalized as cost of land?
12. What amount should be
capitalized as cost of new
building?
Problem 44-8 (IAA)
Paragon Company incurred the
following costs during the current year
in relation to property, plant and
equipment:
Cash paid for purchase of land 2,500,000
Mortgage assumed on the land
purchased, including interest accrued
1,000,000
Realtor commission 300,000
Legal fees, realty taxes and
documentation expenses 50,000
Amount paid to relocate persons
squatting on the property Cost of tearing
down an old building on the land to
make room for construction of new
building 200,000
Salvage value of the old building
demolished 50,000
Cost of fencing the property 110,000
Amount paid to the contractor for the
building constructed 5,000,000
Building permit fee 50,000
Excavation 50,000
Architect fee 200,000
Interest that would have been earned had
the money used during the period of
construction been invested 150,000
13. What amount should be
capitalized as cost of land?
14. What amount should be
capitalized as cost of
building
Problem 44-9 (IFRS)
Isabela Company incurred the following
costs during the current year:
year:
Option fee for land acquired 10,000
Option fee for land not acquired 10,000
Taxes in arrears on land 50,000
Payment for land 1,000,000
Architect fee 230,000
Payment to city hall for approval of
building construction 120,000
Contract price for factory building
5,000,000
Safety fence around construction site
35,000
Safety inspection on building 30,000
Removal of safety fence after
completion of building 20,000
New fence surrounding the factory
80,000
Driveway, parking bay and safety
lighting 550,000
Trees, shrubs and other landscaping
200,000
15. What amount should be
recorded as cost of land?
16. What amount should be
recorded as cost of new
building?
17. What amount should be
recorded as cost of land
improvements?
Problem 44-10 (IAA)
Rolex Company incurred the following
expenditures related to land and
building.
Cash paid for land and dilapidated
building 1,000,000
Removal of old building to make room
for construction of new building 50,000
Payment to tenants for vacating old
building 15,000
Architect fee for new building 200,000
Building permit for new construction
30,000
Fee for title search 10,000
Survey before construction of new
building 20,000
Excavation before new construction
100,009
New building constructed 6,000,000
Assessment by city government for
drainage project 5,000
Cost of grading, leveling and landfill
45,000
Driveway and walk to new building
from street as part of building plan
40,000
Temporary quarters for construction
crew 80,000
Temporary building to house tools and
materials 60,000
Cost of changes during construction to
make new building more energy efficient
50,000
Cost of windows broken by vandals
25,000
18. What amount should be
recorded as cost of land?
19. What amount should be
recorded as cost of new
building
LAND AND BUILDING
Comprehensive problems
Problem 45-1 (IAA)
Altitude Company purchased a plot of
land for P2,000,000 as a plant site. There
was a small office building on the plot
with fair value of P700,000 which the
entity will continue to use with some
modification and renovation. The entity
decided to construct a factory building
and incurred the following costs:
Materials and supplies 3,000,000
Excavation 100,000
Labor on construction 2,500,000
Cost remodeling office building 300,000
Legal cost of conveying land 50,000
Cash discounts on materials purchased
60,000
Supervision by management 70,000
Compensation insurance premium for
workers 20,000
Clerical and other expenses related to
construction 30,000
Plans and specifications 340,000
Payment for claim for injuries not
covered by insurance 25,000
Legal cost of injury claim 15,000
1. What amount should be
recorded as cost of land?
2. What amount should be
recorded as cost of office
building?
3. What amount should be
recorded as cost of factory
building?
Problem 45-2 (LAA)
Factious Company incurred the
following expenditures related to the
construction of a new home office:
Purchase price of land and an old
apartment building 2,000,000
Fair value of land 1,800,000
Legal fees, including fee for title search
10,000
Payment of land mortgage and related
interest due at time of sale 50,0000
Payment of delinquent property taxes
20,000
Cost of razing the apartment building
30,000
Grading and drainage on land site 15,000
Architect fee on new building 200,000
Payment to building contractor
8,000,000
Interest cost on specific borrowing
during construction 300,000
Payment of medical bills of employees
accidentally injured while inspecting
building construction 10,0000
Cost of paving driveway and parking lot
40,0000
Cost of trees, shrubs and other
landscaping 55,000
Cost of installing light in parking lot
5,000
Premium for insurance on building
during construction 25,000
Cost of open house party to celebrate
opening of building 60,000
4. What amount should be
capitalized as cost of land?
5. What amount should be
capitalized as cost of
building?
6. What amount should be
capitalized as cost of land
improvement?
Problem 45-3 (AICPA Adapted)
During the current year, Rock Company
reported the following transactions
related to land and building:
* A piece of land was acquired for
P1,600,000.
To be able to acquire the land, P175,000
was paid to a real estate agent and
P50,000 was incurred to clear the land.
estate agent attr, was incurred to clear
the land.
During the course of clearing the land,
timber and gravel were recovered and
sold for P25,000.
* A second piece of land with a building
was acquired for
P4,500,000.
The appraiser valued the land at
P2,000,000 and the building at
P1,000,000.
Shortly after acquisition, the building
was demolished at a cost of P100,000.
A new building was constructed at a cost
of P5,000,000 plus excavation fee
P50,000, architect fee P80,000 and
building permit
₽70,000.
* A third piece of land was acquired for
P2,000,000 and was held for
undetermined use.
7. What total cost of land
acquired should be reported
in the statement of financial
position under property, plant
and equipment?
8. What amount should be
reported as cost of new
building?
Problem 45-4. (AICPA Adapted)
At the beginning of current year,
Uptown Company disclosed the
following balances:
Land 4,000,000
Land improvement 1,300,000
Building 20,000,000
Machinery and equipment 8,000,000
During the current year, the following
transactions occurred:
* Land was acquired for P2,000,000
cash as a building site.
* A plant facility consisting of land and
building was acquired in exchange for
200,000 shares of the entity. On the
acquisition date, each share had a quoted
price of P45 on a stock exchange.
Current appraised values for the land and
the building, respectively, are
P2,000,000 and P8,000,000. The
building has an expected life of 40 years
with a P200,000 residual value.
* Items of machinery and equipment
were purchased at a total cost
oP4,000,000. Additional costs incurred
were freight and unloading P100,000
and installation P300,000. The
equipment has a useful life of ten years
with no residual value.
• Items of machinery and equipment
were purchased at a total cost of
P4,000,000. Additional costs incurred
were freight and unloading P100,000
and installation P 300,000. The
equipment has a useful life of ten years
with no residual value.
*Expenditures totaling P1,200,000 were
made for new parking lot, street and
sidewalk at the entity's various plant
locations. These expenditures had an
estimated useful life of fifteen years.
* Research and development costs
amounted to P1,100,000.
* A machine costing P200,000 acquired
seven years ago was scrapped at year-
end. Straight line depreciation had been
recorded on the basis of a 10-year life
with no residual value.
* A machine was sold for P 500,000 at
the middle of the year. Original cost of
the machine sold was P700,000 when
acquired three years ago and it was
depreciated on the straight line basis
over an estimated
9. What amount should be
reported as total cost of land
at year-end
10. What amount should be
reported as total cost of land
improvement at year-end?
11. What amount should be
reported as total cost of
building at year-end?
12. What amount should be
reported as total cost of
machinery and equipment at
year-end?

Problem 45-5 (AICPA Adapted)
Excelsior Company was incorporated on
January 1, 2021 but began activities on
July 1, 2021: An analysis of the land and
building account on December 31, 2021
showed the following:
Jan 31 Land and an old building
1,600,000
Feb 28 Cost of removal of old building
90,000
May 1 Partial payment on new
construction 700,000
May 1 Legal fees paid 50,000
June 1 Second payment on new
construction 400,000
June 1 Insurance premium 480,000
June 1 Special tax assessment 60,000
June 30 General expenses 320,000
July 1 Final payment on new
construction 900,000
To acquire land and building, the entity
paid P800,000 cash and issued 8,000
preference shares with par value of P
100 and fair value of P150.
The old building with insignificant fair
value was demolished to make room for
the construction of a new building.
Legal fees covered organization cost P
15,000, title examination of land
purchased P10,000, and legal work
P25,000 in connection with construction
contract.
Insurance premium covered the building
for a two-year term beginning May 1,
2021.
The special tax assessment was for street
improvements that are permanent in
nature.
General expenses included the
president's salary of P220,000 and the
plant superintendent's salary of P
100,000.
13. What amount should be recorded as
cost of land?
14.i What amount should be recorded as
cost of building?
CHAPTER 27: MACHINERY AND
CAPITAL EXPENDITURE
Problem 46-1
Negros Company acquired a new
machinery.
Invoice price of the machinery 1,400,000
Cash discount available but not taken on
purchase 20,000
Freight paid on the new machinery
40,000
Cost of removing the old machinery
15,000
Installation cost of the new machinery
50,000
Testing cost before the machinery was
put into regulaar operation including
P10,000 in wages of the regular
machinery operator 30,000
Loss on premature retirement of the old
machinery 5,000
Estimated cost of manufacturing similar
machinery including overhead 1,300,000
1. What amount should be
capitalized as cost of new
machinery?
Problem 46-2
Shaw company purchased a machine for
P1,260,000 that was placed in service at
year-end. The entity incurred additional
costs for this machine.
Shipping 30,000
Installation 40,000
Testing 50,000
2. At year-end, what amount
should be reported as
machinery?
Problem 46-3
Charry company purchased a second-
hand polishing machine and incurred the
following costs:
Agreed price to be paid to vendor
8,000,000
Dismantlig the machine at the current
location 400,000
Transportation cost to Charry’s factory
350,000
Machine refurbishment cost prior to
reinstallation 175,000
Reinstallation 125,000
3. What amount should be
capitalized as cost of the
second-hand machine?
Problem 46-4 (IFRS)
Basilan Company acquired a machine at
the beginning of the current
year.
Cash paid for machine, including VAT
of P96,000 896,000
Cost of transporting machine 30,000
Labor cost of installation by expert fitter
50,000
Labor cost of testing machine 40,000
Insurance cost for the current year
15,000
Cost of training personnel who will use
the machine 25,000
Cost of safety rails and platform
surrounding machine 60,000
Cost of water device to keep machine
cool 80,000
Cost of adjustment to machine to make it
operate more efficiently 75,000
Estimated dismantling cost to be
incurred as required by contract 65,000
4. What total amount should be
capitalized as cost of the
machine?
Problem 5
Wisdom company installed a new
equipment at th production facility and
incurred the following costs:
Cost of equipment per supplier's invoice
2,500,000
Initial delivery and handling cost
200,000
Cost of site preparation 600,000
Consultants used for advice on the
acquisition of equipment 700,000
Interest charges paid to supplier for
deferred credit 200,000
Estimated dismantling cost to be
incurred as required by contract 300,000
Operating losses before commercial
production 400,000
5. What total amount should be
capitalized as cost of the
equipment?
Problem 6
Newcombe Company uses many kinds
of machines in operations. The
entity acquires some machines from
others and constructs some
machines itself. The following
information pertains to a machine
constructed by the entity:
Cost of material to construct 700,000
Labor cost 430,000
Allocated overhead cost 220,000
Allocated interest cost of financing
machine 100,000
Cost of installation 120,000
Insurance for one year 20,000
Profit saved by self-construction
150,000
Safety inspection cost prior to use
40,000
6. What total amount be
capitalized as cost of the
machine?
Problem 7
During the current year, Christian
Company purchased a second
hand machine at a price of P5,000,000.
A cash payment of P1,000,000 was
made and a two-year,
noninterest bearing note was issued for
the balance of P4,000,000.
Recent transactions involving similar
machine indicate that the used
machine has a second hand market
value of P4,500,000. A new
machine would cost P6,500,000..
The following costs were incurred
during the year:
Cost of removing old machine that is
replaced 350,000
Cash proceeds from the sale of the old
machine replaced 100,000
General overhaul and repairs to
recondition machine prior to use 220,000
Cost of spare parts to cover breakdowns
80,000
Cost of installation 180,000
Cost of testing machine prior to use
150,000
Cost of hauling the machine from
vendor to company premises 40,000
Cost of repairing damage to machine
caused when the machine was dropped
during installation 50,000
Repairs incurred during the first year of
operation 160,000
Safety device added to the machine
300,000
7. What total amount should be
capitalized as cost of the
second hand machine?
Problem 8
Karla Company acquired a new
processing machine.
Invoice cost 1,600,000
Cost of transportation 50,000
Cost of installation 140,000
The terms of the acquisition include a
5% discount if payment is made
in 10 days. The entity paid beyond the
discount period.
The entity's chief engineer with monthly
salary of P60,000 spent
two-thirds of his time during trial run of
the new machine.
The entity requested an allowance from
the supplier because the machine
proved to be of less than standard
performance capability. The supplier
granted a cash allowance of P100,000.
The cost of removing the old machine
before the new machine was
installed amounted to P10,000.
The operator of the old machine who
was laid off due to the acquisition
of the new machine was paid a gratuity
of P30,000.
8. What amount should be
recorded as cost of the new
machine?

Problem 9
Yvo Company installed a production
assembly line to manufacture
furniture. In the current year, the entity
purchased a new machine
and improved the assembly line to
install this machine.
The improvement did not increase the
estimated useful life of the
assembly line but it did result in
significant increase in production.
The following expenditures were
incurred in connection with this
project:
Machine 750,000
Labor to install machine 140,000
Parts added in improving the assembly
line 400,000
Labor and overhead in improving the
assembly line 180,000
9. What total amount of the
expenditures should be
capitalized?
Problem 10
Bell Printing Company incurred the
following costs:
Purchase of collating and stapling
attachment
840,000
Installation of attachment 360,000
Replacement parts for overhaul of press
260,000
Labor and overhead in connection with
overhaul 140,000
The overhaul resulted in a significant
increase in production. Neither
the attachment nor the overhaul
increased the estimated useful life of
the press.
Sealing of roof leaks in production area
80,000
Replacement of door to production area
50,000
Installation of automatic door-opening
system 200,000
Overhead crane for assembly
department to speed up production
350,000
Replacement of broken gear on machine
60,000
13. What total amount of
expenditures should be
capitalized?
Prolem 14
Problem 46-14 (AICPA Adapted)
On July 1, Rudd Company had a
delivery van which was destroyed
in an accident. On that date, the carrying
amount of the van was P3,000,000.
On July 15, the entity received and
recorded a P500,000 invoice
for a new engine installed in the van in
May, and another P100,000
invoice for various repairs.
In August, the entity received
P4,200,000 under an insurance policy
on the van, which it plans to use to
replace the van.
14. What amount should be
reported as gain on disposal
of the van in the income
statement?
CHAPTER 25: BORROWING
COSTS

10. What total amount of the

costs should be capitalized?

Problem 11
King Company made the following
expenditures:
Continuing and frequent repairs 400,000
Repainted the plant building 100,000
Major improvements to the electrical
wiring system 300,000
Partial replacement of roof tiles 140,000

11. What amount should be

charged to repair and
maintenance expense?
Problem 12
Fox Company made the following
expenditures:
Renovation of a group of machines to
secure significant increase in production
over the remaining five-year useful life
500,000
Continuing, frequent, and low cost
repairs 350,000
Replacement of a broken gear on a
machine 50,000

12. What amount should be

charged to repair and
maintenance expense?

Problem 13
Rona Company provided the following
charges to the "repair and maintenance
account".

Service contract on office equipment

100,000
Initial design fee for proposed extension
of office building 150,000
New condenser for central air
conditioning unit 10,000
Purchase of executive chairs and desks
200,000
Purchase of storm windows and screens
and their installation on all office
windows 500,000